USD/JPY Fundamental Daily Forecast – BOJ Policy Decisions Fail to Move Dollar/Yen; US Reports on Tap

The Dollar/Yen is trading flat on Thursday shortly after Bank of Japan policymakers voted to leave monetary policy unchanged. Shares were mostly lower in Asia and are trading steady in the Europe and the United States, indicating a neutral start to day’s trading. U.S. Treasury yields are a little higher, suggesting there isn’t great demand for safe-haven assets either. Volume is low and could even drop further over the next two weeks as we head into holiday season.

At 07:43 GMT, the USD/JPY is trading 109.562, down 0.018 or -0.02%.

BOJ Keeps Policy Steady, Offers Dismal View on Output

The Bank of Japan kept monetary policy steady Thursday and maintained its upbeat view on the economy, suggesting policymakers are in no hurry to boost stimulus even as global risks threaten a fragile recovery.

But central bank policymakers offered a gloomier view on factory output than at its previous rate review in October, a nod to the widening fallout from softening global demand and the U.S.-China trade war.

The BOJ said:  “Japan’s economy is likely to continue on a moderate expanding trend, as the impact of the slowdown in overseas economies on domestic demand is expected to be limited, although the economy is likely to continue to be affected by the slowdown for the time being.”

Additionally, the BOJ voted 7-2 to keep short-term interest rates at minus 0.1% and long-term rates at around 0%.

BOJ’s Negative Rate Policy Criticized

Koichi Hamada, a key economic adviser to Prime Minister Shinzo Abe, also criticized the BOJ’s negative policy and warned against pushing borrowing costs down to a “reversal” rate,” or a level that could do more harm than good by crippling financial institutions’ ability to lend.

“Negative interest rates hurt, particularly smaller financial institutions’ health, so the BOJ must try to avoid a situation where interest rates reach a level deemed as a reversal rate,” he told Reuters earlier this week.

Daily Forecast

Stronger-than-expected U.S. economic data earlier this week has investors thinking the Fed is unlikely to raise rates over the near-term. This helped drive U.S. Treasury yields higher, while underpinning the USD/JPY on Wednesday.

On Thursday, investors will get the opportunity to react to U.S. economic data that includes the Philly Fed Manufacturing Index, Weekly Unemployment Claims, the Conference Board’s Leading Index and Existing Home Sales.

Better-than-expected numbers could continue to put upside pressure on the USD/JPY. Aggressive buyers could try to trigger a breakout over the May 30 top at 109.930, but the weak volume may just keep the Dollar/Yen mostly rangebound until early next year.